Bank and Credit Union Groups Join Forces to Challenge New Illinois Law Restricting Interchange Fees

Jim Nussle

The American Bankers Association today joined the Illinois Bankers Association, America’s Credit Unions and the Illinois Credit Union League in filing a complaint in the U.S. District Court for the Northern District of Illinois challenging the Illinois Interchange Fee Prohibition Act (IFPA). The IFPA, which was signed into law on June 7, would ban banks, payment networks and other entities from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity. The law has been opposed by a number of Illinois business groups. It has also been criticized by the editorial boards of the Chicago Tribune and Crain’s Chicago Business.
 
In the filing, ABA and the co-plaintiffs argue that if allowed to take effect, IFPA would throw the modern and efficient payment system into chaos and undermine the significant benefits that credit and debit cards provide to consumers and businesses. The filing outlines how the new state law violates multiple federal statutes including the National Bank Act and the Federal Credit Union Act and cannot be enforced against national or state-chartered banks, federal or state savings institutions, federal or state-chartered credit unions, nor their service providers. The plaintiffs will seek a preliminary injunction halting implementation of the new law while the court decides the merits of the case.
 
“We’re joining together in this legal challenge to protect Illinois consumers, small businesses and the financial institutions that serve them from the unprecedented chaos and confusion this new state law would create,” said Rob Nichols, ABA president and CEO. “We also joined this lawsuit to strongly defend the dual banking system President Lincoln created in 1863 that has served our nation so well. The IFPA clearly violates the National Bank Act, which gives the federal government specific authority over national banks, as well as a long list of other federal laws designed to protect our financial system. We can’t let that stand.”
 
“While we continue to encourage state lawmakers to reconsider the IFPA, we cannot take the chance that this misguided gift to corporate megastores takes effect and damages our state’s economy,” said Randy Hultgren, president and CEO of the Illinois Bankers Association. “Left unchecked, the IFPA will wreak havoc at the register every time people use their credit or debit card in Illinois, creating confusion for consumers and higher costs for small businesses and banks in our state. This is why we are standing together with ABA and our credit union colleagues in this important fight.”
 
“Illinois lawmakers made a grave mistake when throwing small businesses, consumers, and local economies to the wayside in the Land of Lincoln when they passed the IFPA,” said Jim Nussle, America’s Credit Unions president and CEO. “America’s Credit Unions is joining this lawsuit with our banking trade partners to send a clear message – we will always stand up for the American consumer when interchange and the electronic payment ecosystem is disrupted to benefit bad actors and big box retailers. With over 4 million people in Illinois trusting credit unions to help live their best financial lives, it is our duty to combat unconstitutional legislation.”
 
“The Interchange Fee Prohibition Act would create a significant disruption to a global interchange system that works well today,” said Tom Kane, president and CEO of the Illinois Credit Union League. “The Act presents major challenges for all financial institutions - small and large - while providing a windfall to the largest retailers doing business in Illinois. Most concerning of all, the Act will have a negative impact on small businesses and consumers in Illinois that rely upon safe and convenient card transactions. The filing of this litigation ensures that the courts will carefully review the legality of this Illinois law, which has never been tried anywhere else in the world.”
 
In the complaint, the plaintiffs ask the court to declare the state legislation preempted and unconstitutional as applied, and to prevent Illinois from taking any investigatory or enforcement actions based on the law:
 
“This Court’s intervention is urgently needed to prevent Illinois from infringing on the federally guaranteed powers of national banks, federal savings associations, and federal credit unions. Without injunctive relief, this scheme threatens not only to impose substantial and unrecoverable costs and risks on these entities and other participants in the payment system, but also create chaos throughout the state’s economy. This Court should declare that the IFPA is invalid in all of its applications and enjoin its enforcement as to Plaintiffs’ members and any other participants in the payment system needed to provide those members with complete relief.”
 
Some of the specific legal arguments for challenging the law and seeking a preliminary injunction include:
 

• The IFPA (“the Act”) is preempted by the National Bank Act (“NBA”), which preempts any state law that would “prevent or significantly interfere” with a national bank’s exercise of its powers including the processing of credit and debit cards. In light of the Illinois wild card statute, the dormant Commerce Clause, and the federal Riegle-Neal statute, the Act also cannot be applied to Illinois banks or banks chartered by other states;

• The Act is preempted by the Home Owners’ Loan Act (“HOLA”), which allows federal savings associations to obtain a charter from the federal government and acquire by federal statute comparable powers to those the NBA grants national banks. In light of the Illinois wild card statute and the dormant Commerce Clause, the Act also cannot be applied to Illinois savings banks or savings banks or associations chartered by other states;

• The Act is preempted by the Federal Credit Union Act (“FCUA”), which allows federal credit unions to obtain a charter from the federal government and acquire by federal statute enumerated and incidental powers that include the processing of credit and debit cards. In light of the Illinois wild card statute and the dormant Commerce Clause, the Act also cannot be applied to Illinois credit unions or credit unions chartered by other states; and 

• The Act also conflicts with the Electronic Fund Transfer Act (EFTA) that speaks directly to the permissible amount of interchange fees for debit card transactions and does not carve out tax and gratuities.

 
Read the full complaint.

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